COVID-19: What does it mean for the supply chain?

March 25, 2020

In the words of the former U.S. President, Franklin D. Roosevelt: “The only thing we have to fear is fear itself.” Yes, the outbreak of COVID-19 is increasingly worrisome. As cases continue to grow, both the health of our loved ones is materially impacted as are our everyday lives. Though this may be a temporary blip in the markets, it could have a lasting impact on our behaviour. However, as a society, we’ve historically seen worse. In all likelihood, the virus will subside as quickly as it struck as the article “Calcalist” by Biophysicist Michael Levitt articulates – “Corona is Slowing Down, Humanity will Survive.”

These, as we can all agree, are undeniably daunting times. Businesses are at the forefront of the COVID-19 outbreak addressing and dealing with a wide variety of issues – from sagging sales and challenged supply chains to keeping employees healthy and ensuring they can continue working.

In the case of manufacturers, logistics providers and distributors, the COVID-19 outbreak has caused delays in terms of labour, movement of goods, and government restrictions. They have experienced various elements of disruption due to the aforementioned; however, the real issue appears to stem from sudden panic buying from the many consumers who are stockpiling goods and leaving supermarket aisles bare. One could argue it’s a classic case of the Bullwhip Effect; but in reality, it’s not. This particular situation is somewhat of the reverse given that the manifestation stems from uncertainty as to how things are going to pan out, how much worse it’s going to get, or from a lack of confidence in the ability of retailers to replenish food and essential goods in a timely manner.

With these concerns growing daily, DeVono Cresa’s Global Portfolio Solutions team has spoken to senior executives from globally leading logistics and shipping companies at the forefront of supply lines and transportation to sense if there were any circumstances, outside of panic buying, that might impact the supply of food and essential goods. Each of them, similarly and confidently, stated that despite Chinese manufacturing being offline for a few weeks, and with Italy and Germany scaling down manufacturing in the near term, food and other essential and non-essential goods are moving (and will continue to move) with little interruption or delay. I have highlighted some of the comments from these thought leaders on the reality of supply chains and transportation during the COVID-19 crisis:

A few transport, wholesalers and retailers are experiencing some level of labour shortage

The transportation of commercial essential goods is not locked down nor is anticipated to be

Many countries including the UK is yet to ban flights:

Urgent and highly specialised cargo (e.g. pharmaceuticals, medical equipment that is transported by air will continue without interruption)

Almost above 90% of commercial goods are shipped via sea or on-the-ground. They are moving and moving well. No major ports are locked down nor expected to be in the near term.

Borders that are closed will continue to allow commercial goods to pass through as long as drivers have the current and appropriate health documentation. Border checks may cause some minor delays with increased paperwork but not enough to trigger shortages.

China is back online, and goods are moving despite the temporary imbalance of containers in the West, which is steadily correcting.

Limited European production may cause another container imbalance but nothing that cannot be overcome in a relatively short period of time.

These thought leaders also offered views on the most likely change as a result of the COVID-19 crisis. I, like them, unequivocally agree that shopping, dining, public events, etc., will be forever transformed – particularly the manner in which retailers and consumers interact and engage with each other.

Changes expected in the near term:

Venues changing from high contact social locations to discreet limited interaction environments

More e-commerce – further increase in contactless shopping and delivery

Improvements with order fulfilment technology that directly connects the manufacturer or wholesaler to the consumer enabling streamlined fulfilment and distribution

More consideration around crisis replenishment strategies between manufacturers / wholesalers and retailers

An increase in ‘last mile’ distribution points

Permanent changes to purchasing behaviours

What does this mean for manufacturers, logistics providers and distributors in terms of real estate / property needs of the future?

Many will start re-evaluating and taking a serious look at how their property portfolio is (or should be) positioned to support the needs of their customer (i.e. retailers and consumers) post the COVID-19 crisis. For example, the grocery store of today may be repurposed from a traditional store to a large ‘click and collect’ facility or converted to a ‘last mile’ distribution point for on-line retailers. We therefore expect that warehousing and distribution sector will not only expand and become more integral to the overall real estate market, but it will reshape in ways that we’ve never seen before (i.e. take-up or utilising of atypical properties). As a result of increased e-commerce activity, retailers in the US and the UK have already seen the closure of several brick and mortar stores. If the COVID-19 outbreak results in a further increase in online purchasing activity, retailers may also have to consider increasing their industrial storage unit capacity to fulfil changes in consumer consumption patterns.

It is indeed true that we are living through uncertain and challenging times, but one must keep in mind that we will emerge from this crisis. COVID-19 has already been the catalyst for dramatic change. At DeVono Cresa we remain at the ready to counsel, navigate and represent industrial and logistics clients during these evolving and challenging times. We are prepared for the future and ready to assist clients with supply chain optimisation, distribution network modelling, location strategy and site selection. As companies assess their future needs and site portfolio, we can help you lower costs, maintain revenue, attract talent, manage risk and perhaps most importantly – maintain that increasingly necessary competitive edge.

Dan works with major international corporates and private equity / family offices through a multi-service platform from the earliest stages of strategy development to a successful portfolio restructure and/or relocation.

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